The Different Types of Business Valuations: Which is Right for Your Houston Business

Three times in the past six months, a Houston business owner has sat across from me with the same problem. They need to know what their business is worth, but they have no idea how to calculate it.

One was a medical billing company in the Texas Medical Center planning a sale. Another was a contractor in Cypress going through a divorce. The third was a restaurant owner in Montrose bringing on a partner.

Different situations. Same question: what number do we put on this?

The answer depends on which valuation method you use. There are three main approaches, and each one produces a different number. Here’s how to know which one applies to your business.

Market-Based Valuation

This method looks at what similar businesses have sold for recently and uses those numbers as a benchmark.

If you own a bakery in the Heights and three comparable bakeries sold in the past two years for an average of $500,000, that’s your starting point. The method works best when there’s an active market for businesses like yours and real transaction data to compare against.

I’ve used market-based valuations for Houston clients in retail, food service, and franchises. The data exists. Buyers and sellers in those industries know what the going rate is.

The problem shows up when your business is unusual. If you’re the only company in Houston doing what you do, there are no comparable sales. Market-based valuation falls apart without comparables.

Best for: Businesses in industries with active sale markets and recent transaction data.

Asset-Based Valuation

This approach adds up everything your business owns. Real estate, equipment, inventory, vehicles, furniture. Whatever shows up on the balance sheet as a tangible asset gets counted.

A commercial HVAC company in Katy came to us last year for an asset-based valuation. They owned the building ($340,000), had a fleet of service trucks ($180,000), specialized tools and diagnostic equipment ($95,000), and inventory ($42,000). Total asset value: $657,000.

That number mattered because the owner was dissolving the business. No buyer was coming in to run it. The question wasn’t “what’s this business worth as a going concern?” It was “what could we sell this stuff for?”

Asset-based works when the business is all about the stuff. Real estate holding companies, equipment rental operations, liquidations.

It doesn’t work when the value lives in something you can’t touch. Client relationships. Brand reputation. Proprietary processes. Trained staff. Those are intangible assets, and asset-based valuation ignores them entirely.

Best for: Asset-heavy businesses, holding companies, or businesses being sold for parts.

Income-Based Valuation

This method values your business based on what it earns.

There are two common approaches. One is discounted cash flow (DCF), which projects future cash flows and discounts them back to present value. The other is EBITDA multiple, which takes your earnings before interest, taxes, depreciation, and amortization, then multiplies it by a number that reflects your industry and risk profile.

A Houston consulting firm doing $1.2 million in annual revenue with an EBITDA of $310,000 might be valued at 3x to 4x EBITDA. That’s a range of $930,000 to $1,240,000, depending on client concentration, contract terms, and growth trajectory.

Income-based valuations make sense when the business generates consistent profit and you can reasonably predict what next year looks like. SaaS companies, professional services, subscription businesses, and any operation with recurring revenue.

It breaks down when earnings are inconsistent. A contractor who had one great year followed by two slow ones doesn’t have reliable income to base a valuation on. The method needs stability.

Best for: Profitable businesses with predictable earnings and clean financial records.

How These Play Out in Real Life

Let me show you what this looks like for an actual Houston business.

A bakery in Montrose approached us for a valuation before bringing on an investor. Here’s how the three methods shook out:

Market-based: Comparable bakeries in Houston had sold for $420,000 to $580,000 over the past 18 months. Average: $500,000.

Asset-based: The bakery owned commercial kitchen equipment ($85,000), furniture and fixtures ($12,000), and inventory ($8,000). No real estate. Total assets: $105,000.

Income-based: Annual revenue was $680,000 with an EBITDA of $92,000. Using a 3.5x multiple for small food service businesses in Houston: $322,000.

Three methods. Three different answers.

Which one mattered? The income-based number, because the investor cared about cash flow, not equipment. The market-based number gave us context. The asset-based number told us the floor if the business failed.

What We Actually Do for Houston Businesses

When a client asks us for a business valuation, we don’t pick one method and call it done. We run all three, compare the results, and explain what each number means in the context of why the valuation matters.

Selling to a strategic buyer? They care about income and market comparables.

Going through a divorce? The court wants to see all three methods because Texas is a community property state.

Bringing on equity partners? Income-based drives the conversation, but asset-based sets the baseline.

Applying for an SBA loan? The lender will look at all three and use the most conservative number.

The method isn’t arbitrary. It’s tied to what you need the valuation for.

When You Actually Need This

Most Houston business owners don’t need a formal valuation every year. You need one when something changes.

You’re selling the business. You’re buying out a partner. You’re going through a divorce. You’re bringing on investors. You’re applying for a loan that requires third-party validation of value. You’re planning your estate and need to know what to tell your kids the business is worth.

Those are the moments when “I think it’s worth about this much” stops being good enough.

A formal valuation from someone who does this regularly costs $2,500 to $8,000 in Houston, depending on complexity and industry. It’s not a recurring expense. It’s a one-time project tied to a specific business decision.

If you’re just curious, we can walk you through the math for a few hundred dollars and help you run the numbers yourself. If you need a defensible report for the IRS, a court, or a lender, that’s when the full engagement makes sense.

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EZQ Group provides business valuation services for Houston companies. Contact us to discuss which valuation method fits your situation.